Do risk and time preferences have biological roots?

Drichoutis, Andreas and Nayga, Rodolfo (2012): Do risk and time preferences have biological roots?

Abstract

We revisit the claims about the biological underpinnings of economic behavior by specifically exploring if observed gender differences in risk/time preferences can be explained by natural fluctuations in progesterone/estradiol levels during the menstrual cycle and by prenatal exposure to testosterone levels. Results suggest that natural fluctuations in progesterone levels have a direct effect on discount rates and that estradiol/progesterone levels can indirectly affect time preferences by changing the curvature of the utility function. Using measured D2:D4 digit ratio, results imply that subjects with low digit ratio exhibit higher discount rates and risk loving preferences.

• Item Type: MPRA Paper
• Language: English
• Keywords: discount rates; risk aversion; lab experiment; menstrual cycle; D2:D4 ratio; hormones; estradiol; progesterone; testosterone
• Subjects: D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D81 - Criteria for Decision-Making under Risk and Uncertainty; C - Mathematical and Quantitative Methods > C9 - Design of Experiments > C91 - Laboratory, Individual Behavior

References

Allais, M. (1953). Le comportement de l'homme rationnel devant le risque: Critique des postulats et axiomes de l'ecole Americaine. Econometrica 21:503-546.

Andersen, S., G.W. Harrison, M. Lau, & E.E. Rutstrom. (2011a). Multiattribute Utility Theory, Intertemporal Utility and Correlation Aversion. Center for the Economic Analysis of Risk, Working Paper 2011-04.

Andersen, S., G.W. Harrison, M. Lau, & E.E. Rutström. (2011b). Discounting behavior and the magnitude effect. Center for the economic Analysis of Risk, Working Paper 2011-01.

Andersen, S., G.W. Harrison, M.I. Lau, & E.E. Rutstrom. (2008). Eliciting risk and time preferences. Econometrica 76:583-618.

Andersen, S., G.W. Harrison, M.I. Lau, & E.E. Rutström. (2011c). Discounting behavior: A reconsideration. Center for the Economic Analysis of Risk, Working Paper 2011-03.

Andreoni, J., & C. Sprenger. (2012). Estimating time Preferences from convex budgets. American Economic Review (forthcoming).

Apicella, C.L., A. Dreber, B. Campbell, P.B. Gray, M. Hoffman, & A.C. Little. (2008). Testosterone and financial risk preferences. Evolution & Human Behavior 29:384-390.

Apicella, C.L., A. Dreber, P.B. Gray, M. Hoffman, A.C. Little, & B.C. Campbell. (2011). Androgens and competitiveness in men. Journal of Neuroscience, Psychology, and Economics 4:54-62.

Austin, E.J., J.T. Manning, K. McInroy, & E. Mathews. (2002). A preliminary investigation of the associations between personality, cognitive ability and digit ratio. Personality and Individual Differences 33:1115–1124.

Becker, J.B., K.J. Berkley, N. Geary, E. Hampson, J.P. Herman, & E.A. Young. 2008. Sex differences in the brain: From genes to behavior. New York: Oxford University Press.

Benjamin, D.J., S.A. Brown, & J.M. Shapiro. (2006). Who is "behavioral"? Cognitive ability and anomalous preferences. mimeo Harvard University.

Brañas-Garza, P., & A. Rustichini. (2011). Organizing effects of testosterone and economic behavior: Not just risk taking. PLoS ONE 6:e29842.

Brizendine, L. 2006. The female brain. New York: Morgan Road Books.

Bröder, A., & N. Hohmann. (2003). Variations in risk taking behavior over the menstrual cycle: An improved replication. Evolution and Human Behavior 24:391-398.

Burd, M. (2010). Hunting, gathering, investing, globalizing: The biological roots of economic behaviour. Systems Research and Behavioral Science 27:510-522.

Burks, S.V., J.P. Carpenter, L. Goette, & A. Rustichini. (2009). Cognitive skills affect economic preferences, strategic behavior, and job attachment. Proceedings of the National Academy of Sciences 106:7745-7750.

Burnham, T.B. (2007). High-testosterone men reject low ultimatum game offers. Proceedings of the Royal Society B: Biological Sciences 274:2327-2330.

Burns, B.D. (2006). Cognitive neuroendocrinolgy: Risk preference changes across the menstrual cycle. Paper presented at the joint 28th Annual Conference of the Cognitive Science Society & the 5th International Conference of the Cognitive Science, Vancouver, Canada, July 26-29.

Buser, T. (2010). The impact of the menstrual cycle and hormonal contraceptives on competitiveness. Journal of Economic Behavior & Organization (forthcoming).

Buser, T. (2011). Hormones and Social Preferences. unpublished.

Chen, Y., P. Katuscák, & E. Ozdenoren. (2009). Why can’t a woman bid more like a man? working paper Center for Economic Research and Graduate Education, Charles University.

Chiazze, L., F.T. Brayer, J.J. Macisco, M.P. Parker, & B.J. Duffy. (1968). The length and variability of the human menstrual cycle. JAMA: The Journal of the American Medical Association 203:377-380.

Coates, J.M., M. Gurnell, & A. Rustichini. (2009 ). Second-to-fourth digit ratio predicts success among high-frequency financial traders. Proceedings of the National Academy of Sciences 106:623-628.

Coates, J.M., & J. Herbert. (2008). Endogenous steroids and financial risk taking on a London trading floor. Proceedings of the National Academy of Sciences 105:6167-6172.

Coates, J.M., & L. Page. (2009). A Note on Trader Sharpe Ratios. PLoS ONE 4:e8036.

Coller, M., & M. Williams. (1999). Eliciting individual discount rates. Experimental Economics 2:107-127.

Cooke, R.R., J.E.A. McIntosh, & R.P. McIntosh. (1993). Circadian variation in serum free and non-SHBG-bound testosterone in normal men: measurements, and simulation using a mass action model. Clinical Endocrinology 39:163-171.

Croson, R., & U. Gneezy. (2009). Gender differences in references. Journal of Economic Literature 47:448-474.

Da Silva, S., D. Baldo, & R. Matsushita. (2011). Biological correlates of the Allais paradox - updated.

Daly, M., L. Delaney, & C.P. Harmon. (2009). Psychological and biological foundations of time preference. Journal of the European Economic Association 7:659-669.

Dohmen, T., A. Falk, D. Huffman, & U. Sunde. (2010). Are risk aversion and impatience related to cognitive ability? American Economic Review 100:1238-1260.

Dreber, A., & M. Hoffman. (2007). Portfolio selection in utero. Paper presented at 19th Annual Human Behavior & Evolution Society conference. The College of William & Mary, Williamsburg, VA, May 30–June 3.

Eckel, C.C., & P.J. Grossman. (2008). Forecasting risk attitudes: An experimental study using actual and forecast gamble choices. Journal of Economic Behavior & Organization 68:1-17.

Eisenegger, C., M. Naef, R. Snozzi, M. Heinrichs, & E. Fehr. (2010). Prejudice and truth about the effect of testosterone on human bargaining behaviour. Nature 463:356-359.

Fehring, R.J., M. Schneider, & K. Raviele. (2006). Variability in the phases of the menstrual cycle. Journal of Obstetric, Gynecologic & Neonatal Nursing 35:376-384.

Fischbacher, U. (2007). z-Tree: Zurich Toolbox for Ready-made Economic Experiments. Experimental Economics 10:171-178. Frederick, S. (2005). Cognitive Reflection and Decision Making. Journal of Economic Perspectives 19:25-42.

Garbarino, E., R. Slonim, & J. Sydnor. (2011). Digit ratios (2D:4D) as predictors of risky decision making for both sexes. Journal of Risk and Uncertainty 42:1-26.

Greiner, B. (2004). An Online Recruitment System for Economic Experiments. In: Kurt Kremer, Volker Macho (Hrsg.): Forschung und wissenschaftliches Rechnen. GWDG Bericht 63. Ges. für Wiss. Datenverarbeitung, Göttingen, 79-93.

Guiso, L., & A. Rustichini. (2011). What drives women out of entrepreneurship? The joint role of testosterone and culture. working paper European University Institute & EIEF.

Harrison, G.W., E. Johnson, M.M. McInnes, & E.E. Rutström. (2005). Risk aversion and incentive effects: Comment. The American Economic Review 95:897-901.

Harrison, G.W., M.I. Lau, & E.E. Rutström. (2009). Risk attitudes, randomization to treatment, and self-selection into experiments. Journal of Economic Behavior & Organization 70:498-507.

Harrison, G.W., M.I. Lau, & M.B. Williams. (2002). Estimating individual discount rates in Denmark: A field experiment. American Economic Review 92:1606-1617.

Harrison, G.W., & E.E. Rutstrom (2008) Risk aversion in the laboratory, ed. J.C. Cox, & G.W. Harrison, vol. 12. Bingley, UK, Emerald Group Publishing Limited, pp. 41-196.

Holt, C.A., & S.K. Laury. (2002). Risk aversion and incentive effects. The American Economic Review 92:1644-1655.

Kahneman, D., & A. Tversky. (1979). Prospect theory: An analysis of decision under risk. Econometrica 47:263-291.

Kirby, K., & N. MarakoviĆ. (1996). Delay-discounting probabilistic rewards: Rates decrease as amounts increase. Psychonomic Bulletin & Review 3:100-104.

Kirby, K.N., N.M. Petry, & W.K. Bickel. (1999). Heroin addicts have higher discount rates for delayed rewards than non-drug-using controls. Journal of Experimental Psychology: General 128:78-87.

Kosfeld, M., M. Heinrichs, P.J. Zak, U. Fischbacher, & E. Fehr. (2005). Oxytocin increases trust in humans. Nature 435:673-676.

Laury, S.K., & C.A. Holt (2008) Further reflections on the reflection effect, ed. J.C. Cox, & G.W. Harrison, vol. 12. Bingley, UK, Emerald.

Manning, J.T. 2002. Digit ratio: A pointer to fertility, behavior and health. New Jersey: Rutgers University Press.

Millet, K., & S. Dewitte. (2006). Second to fourth digit ratio and cooperative behavior. Biological Psychology 71:111-115.

Millet, K., & S. Dewitte. (2008). A subordinate status position increases the present value of financial resources for low 2D:4D men. American Journal of Human Biology 20:110-115.

Millet, K., & S. Dewitte. (2009). The presence of aggression cues inverts the relation between digit ratio (2D:4D) and prosocial behaviour in a dictator game. British Journal of Psychology 100:151–162.

Pearson, M., & B. Schipper. (2012). The visible hand: finger ratio (2D:4D) and competitive bidding. Experimental Economics (forthcoming):1-20.

Pearson, M., & B.C. Schipper. (2011). Menstrual cycle and competitive bidding. unpublished manuscript.

Quiggin, J. (1982). A theory of anticipated utility. Journal of Economic Behavior & Organization 3:323-343.

Saha, A. (1993). Expo-power utility: A flexible form for absolute and relative risk aversion. American Journal of Agricultural Economics 75:905-913.

Sanchez-Pages, S., & E. Turiegano. (2010). Testosterone, facial symmetry and cooperation in the prisoners' dilemma. Physiology & Behavior 99:355-361.

Sapienza, P., L. Zingales, & D. Maestripieri. (2009). Gender differences in financial risk aversion and career choices are affected by testosterone. Proceedings of the National Academy of Sciences 106:15268–15273.

Schipper, B.C. (2011a). Sex Hormones and Choice under Risk. unpublished.

Schipper, B.C. (2011b). Sex Hormones and Competitive Bidding. unpublished.

Society for Women's Health Research. (2008, March 3). Sex differences extend into the brain. ScienceDaily Retrieved February 18, 2012, from http://www.sciencedaily.com/releases/2008/02/080229171609.htm.

Stricker, R., R. Eberhart, M.-C. Chevailler, F.A. Quinn, P. Bischof, & R. Stricker. (2006). Establishment of detailed reference values for luteinizing hormone, follicle stimulating hormone, estradiol, and progesterone during different phases of the menstrual cycle on the Abbott ARCHITECT analyzer. Clinical Chemistry and Laboratory Medicine 44:883-887.

Takahashi, T., K. Sakaguchi, M. Oki, & T. Hasegawa. (2008). Sex hormonal modulation of hyperbolic discount factor in men. Journal of Neuroscience, Psychology, and Economics 1:7-16.

Trahms, C.A., J.E. Coombs, & M. Barrick. (2010). Does biology matter? How prenatal testosterone, entrepreneur risk propensity, and entrepreneur risk perceptions influence venture performance. Frontiers of Entrepreneurship Research 30:Article 4.

Tversky, A., & D. Kahneman. (1992). Advances in prospect theory: Cumulative representation of uncertainty. Journal of Risk and Uncertainty 5.

van den Bergh, B., & S. Dewitte. (2006). Digit ratio (2D:4D) moderates the impact of sexual cues on men's decisions in ultimatum games. Proceedings of the Royal Society B: Biological Sciences 273:2091-2095.

White, R.E., S. Thornhill, & E. Hampson. (2006). Entrepreneurs and evolutionary biology: The relationship between testosterone and new venture creation. Organizational Behavior and Human Decision Processes 100:21-34.

Wilcox, N.T., “‘Stochastically More Risk Averse:’ A Contextual Theory of Stochastic Discrete. (2011). ‘Stochastically more risk averse:’ A contextual theory of stochastic discrete choice under risk. Journal of Econometrics 162:89-104.

Wozniak, D., W.T. Harbaugh, & U. Mayr. (2011). The menstrual cycle and performance feedback alter gender differences in competitive choices. MPRA Paper No. 31374.

Zak, P.J., K. Borja, W.T. Matzner, & R. Kurzban. (2005a). The neuroeconomics of distrust: Sex differences in behavior and physiology. American Economic Review 95:360-363.

Zak, P.J., R. Kurzban, S. Ahmadi, R.S. Swerdloff, J. Park, L. Efremidze, K. Redwine, K. Morgan, & W. Matzner. (2009). Testosterone administration decreases generosity in the ultimatum game. PLoS ONE 4:e8330.

Zak, P.J., R. Kurzban, & W.T. Matzner. (2005b). Oxytocin is associated with human trustworthiness. Hormones and Behavior 48:522-527.

Zak, P.J., A.A. Stanton, & S. Ahmadi. (2007). Oxytocin increases generosity in humans. PLoS ONE 2:e1128.

Zethraeus, N., L. Kocoska-Maras, T. Ellingsen, B. von Schoultz, A. Lindén Hirschberg, & M. Johannesson. (2009). A randomized trial of the effect of estrogen and testosterone on economic behavior. PNAS 106:6535-6538.